ss | Course Paper

ANALYSIS OF THE PROBLEM

FOR THE USE OF ARBITRATORS

Twenty Seventh Annual Willem C. Vis

International Commercial Arbitration Moot

Vienna, Austria

October 2019 – April 2020

Oral Hearings

April 4 – 9, 2020

Organised by:

Association for the Organisation and Promotion of the

Willem C. Vis International Commercial Arbitration Moot

and

Seventeenth Annual Willem C. Vis (East)

International Commercial Arbitration Moot

Hong Kong

Oral Arguments

March 23 – 29, 2020

Organised by:

Vis East Moot Foundation Limited

Prof. Dr. Stefan Kröll

ANALYSIS OF THE PROBLEM

FOR USE OF THE ARBITRATORS

If you do not already have a copy of the Problem, it is available on the Vis Moot web

site, https://vismoot.pace.edu/site/27th-vis-moot/the-problem. If you downloaded the

Problem during October you will need to download the revised version issued at the

beginning of November which includes Procedural Order No 2 (PO 2) and subsequent

comments.

This analysis of the Problem is primarily designed for the use of arbitrators. Arbitrators

who may be associated with a team in the Moot are strongly urged not to communicate

any of the ideas contained in this analysis to their teams before the submission of the

Memorandum for Respondent.

The analysis will be sent to all teams after all Memoranda for Respondent have been

submitted. Many of the team coaches/professors participate as arbitrators in the Moot

and therefore receive this analysis. It only seems fair that all teams should have the

analysis of the Problem for the oral arguments. If the analysis contains ideas teams

had not thought of before, the respective teams will still have to turn those ideas into

convincing arguments to support the position they are taking. At the same time, the

analysis is not intended to give away all possible arguments. For that reason, this

analysis often does no more than merely flag the issue without mentioning the

arguments for or against a certain position. It does not contain a full analysis of the

problem.

All arbitrators should be aware that the legal analysis contained herein may not be the

only way the Problem can be analyzed. It may not even be the best way that one or

more of the issues can be analyzed. The number of issues that arise out of the fact

situation makes it necessary for the teams to decide which of the issues they

emphasize in their submissions and oral presentations. Arbitrators should keep in mind

that the team’s background might influence its approach to the Problem and its

analysis. In addition, the decision may be influenced by the presentation a team has

to respond to. Full credit should be given to those teams that present different, though

fully appropriate, arguments and emphasize different issues.

In the oral hearings, in particular in the later rounds, arbitrators may inform the teams

which issues they should primarily focus on in their presentation, if they want to discuss

certain issues specifically. They should do so, if they want to make the in-depth

discussion of a particular issue part of their evaluation.

Prof. Dr. Stefan Kröll

THE FACTS

I. The Parties and Contractual History

CLAIMANT, HydroEN plc, is a market leader in providing pump hydro power plants. It

operates in over 100 countries and has an annual turnover of US$ 4.3 billion and has

more than 25,000 employees. It is well known to realise pump hydro power plants in

challenging environments conforming to the highest environmental protection

standards.

RESPONDENT, TurbinaEnergia Ltd, is a world-renowned producer of premium water

turbines. It produces its turbines with 400 employees in Equatoriana and 150

employees in Danubia and has an annual turnover of US$ 180 million.

RESPONDENT’s premium product is the R-27V Francis Turbine with a capacity of 300

MW. It has been presented to the general public in 2013 and has at the time been the

most expensive turbine in the market. One of the particular features of the R-27V

Francis Turbine following from its design and the materials used is an increased

corrosion and cavitation resistance which allows for longer inspection and

maintenance intervals (Respondent Exhibit R 1). For the short inspections, the

intervals could be extended from 2 to 3 years and from 12 to 13 years for the interim

inspection while a main inspection should be done every 26 years.

The dispute arose out of a Sales Agreement, concluded on 22 May 2014, in which

CLAIMANT purchased two R-27V Francis Turbines for its Greenacre Pump Hydro

Power Project.

Greenacre is a city of 100,000 people situated among the rolling hills of Western

Mediterraneo, a remote part of Mediterraneo. Due to the Terranean mountain range,

the region is separated from the rest of the country and only connected to the energy

grid of the neighbouring country Ruritania.

For the last ten years Greenacre has moved towards being a sustainable community,

including adopting a Sustainability Bill of Rights. In 2010 the Council of Greenacre, with

the support of 82% of the population, adopted a “no-carbon” energy-strategy. It

provided for a massive increase of the wind and solar energy production capacity to

an extent that the energy generated this way would generally meet the demand. A

cornerstone in that strategy was the construction of a pump hydro power plant. Its

primary purpose was to make the availability of renewable energy largely independent

from the weather conditions which affect the production of wind and solar energy. In

times of overproduction the excess energy produced by the wind turbines and the solar

panel is used to pump the water from the lower reservoir into the upper reservoir. From

there, the water is then released again to the lower reservoir powering the turbines

whenever the demand exceeds the supply of green energy produced by the wind parks

and the solar panels. By being able to use a considerable amount of excess energy at

times of overproduction and to release energy promptly when needed, the power plant

also plays an important role in stabilizing the local Greenacre energy grid.

Prof. Dr. Stefan Kröll

On 15 July 2014, CLAIMANT was awarded the contract for the construction and

operation of the pump hydro power plant as the result of a public tender process which

the Council of Greenacre had initiated in January 2014. In preparation of its bid

CLAIMANT had contacted RESPONDENT already in March 2014 to enquire about a

potential delivery of two R-27V Francis Turbines to be included into the plant should

the contract be awarded to CLAIMANT (Claimant Exhibit C 1). RESPONDENT was

very willing to do so and both Parties signed a Sales Agreement on 22 May 2014,

according to which RESPONDENT was to deliver and install two R-27V Francis

Turbines should CLAIMANT be awarded the tendered contract (Claimant Exhibit C 2).

The inclusion of RESPONDENT’s newly developed, innovative, and powerful R-27V

Francis Turbine were an important factor for the success of CLAIMANT’s bid. First,

they allowed for a more environmental-friendly design of the plant since only two

turbines were needed to guarantee the needed power of 600 MW. Second, they also

should have allowed for longer inspection and maintenance intervals. This was an

important consideration since generally each inspection and maintenance results in a

reduced availability of the plant of approximately 4-6 weeks. The inspection of each

turbine takes around 2-3 weeks, during which only the other turbine is available to

manage the supply of energy. Furthermore, for the inspection works at the generator

and the penstock the whole plant has to shut down. Thus, during the inspection time,

the plant is, at best, only 50% available to store the surplus of energy at peak

production times and to release it at times when the demand exceeds the energy

produced by the other renewable energy sources. As a consequence, such energy

needed would have to come from one of the only two other sources available, i.e. two

stacks of powerful batteries of 50 MW each and the coal fired power plant close to the

border in the neighboring Ruritania, which is the only conventional power plant

connected to the Greenacre grid.

The local authorities in Greenacre made it clear during the tender process that one of

the relevant considerations for the selection of the contractor was to avoid or at least

minimise the need to rely on such carbon-based energy. That was already mentioned

in the preamble of the model contract contained in the tender documentation which the

successful bidder had to conclude with the Council of Greenacre. The councilor in

charge of the project, Mr. Gilbert Crewdson, subsequently even insisted on an

amendment of the contract to include an express commitment by CLAIMANT to

guarantee the availability of the plant for at least eleven months per year for the

production of at least 600 MW. Thus, the contract between the Council of Greenacre

and CLAIMANT now contains a penalty of US$ 40,000.00 for each day in which the

non-availability of the pump hydro power plant makes it necessary to rely on “dirty

energy” from Ruritania to meet an excess of demand which could not be fulfilled by

solar or wind energy (Claimant Exhibit C 6).

To exclude as far as possible the need to buy any energy from the coal fired plant in

Ruritania, CLAIMANT had planned to schedule all necessary inspections during the

vacation time in September/October. In normal years, during the vacation time of eight

weeks, the other sources of renewable energy could be expected to produce sufficient

energy to meet the reduced demand. There are very few hours during night- time when

the demand is likely to exceed the energy produced. In these few hours the two battery

stacks should generally be sufficient to provide the required additional quantity of

energy. Consequently, if the inspections can be done as planned in

September/October, it is very likely that despite the non-availability of the pump hydro

power station an actual purchase of energy from the coal fired power plant in Ruritania

could be avoided. The latter would only provide reserve energy capacity to guarantee

a supply in case of unforeseen events or extreme whether situations. There was,

however, the clear expectation that there would be no need to use such reserve

capacity.

Unfortunately, July/August and November/December are the months of peak demand

and a high volatility of the energy produced by wind turbines and solar panels. During

these four months the pump hydro power plant is operating largely at “full speed” due

to the extremely volatile production rates of the other sources of renewables. Any

standstill of the hydro power plant or a reduction in production during these four months

will definitively result in the need to purchase missing energy from the only further

available source of energy connected to the grid in Greenacre, the existing old coal

fired power plant in Ruritania. Also, in the remaining months, the energy produced by

the power plant is generally required to meet the demand so that in a case of a standstill

of the plant it would have to be replaced by energy from the coal fired plant in Ruritania.

After winning the contract on 15 July 2014, CLAIMANT immediately started with the

construction of the pump hydro power plant and managed to finalise it in less than

four years. In late spring 2018, RESPONDENT delivered and installed the two R-27V